The Internal Revenue Service (IRS) announced Friday that it has increased the amount individuals can contribute to their 401(k) and other retirement plans to account for inflation.
Each year, the IRS reviews the tax thresholds and limitations for various retirement accounts and considers a cost-of-living adjustment based on the impact of inflation since the previous change occurred.
For the 2025 tax year, the IRS is increasing the annual contribution limit for 401(k) plans by $500, from the current limit of $23,000 in 2024 to $23,500 in 2024.
These limits also apply to several other retirement plans and will see the same increase for the 2025 tax year, including 403(b) retirement plans, government 457 plans and the federal government’s Thrift Savings Plan.
Irs sets new tax brackets and increases standard deduction for 2025
The IRS is also considering adjustments to the contribution limits for individual retirement accounts (IRAs), including traditional and Roth IRAs. However, the IRS will keep the annual IRA contribution limits constant at $7,000 from 2024 to 2025. It also maintains the IRA catch-up contribution limit for those age 50 and older at $1,000 through 2025.
Read more in the Fox Business app
The catch-up contribution limit that applies to employees age 50 and older enrolled in most 401(k), 403(b), government 457 and Savings plan for thrift will remain at $7,500 for 2025. Employees age 50 and older generally can contribute up to $31,000 per year to retirement plans beginning in 2025, under changes made with the enactment of the SECURE 2.0 Act of 2022.
Yellen calls the enforcement of IRS a contribution to closing the budget deficit
That law also created a higher catch-up contribution limit for workers ages 60 to 63 who participate in these plans — which will increase to $11,250 from $7,500 in 2025.
The IRS also adjusted the thresholds below which taxpayers can contribute to a traditional IRA and receive an amount tax deduction for their contribution.
For individual taxpayers who are also covered by a workplace retirement plan, the traditional range for the IRA tax deduction phase-out increases from $77,000 to $87,000, from $79,000 to $89,000. For married couples filing joint tax returns, the phase-out margin increases to between $126,000 and $146,000, an increase of $3,000 from last year.
The income reduction range for taxpayers contributing to a Roth IRA has increased from $146,000 to $161,000 for individuals and heads of household from $150,000 to $165,000. For married couples filing jointly, the phase-out margin increases by $6,000 to between $236,000 and $246,000.
